TMI Blog2015 (5) TMI 726X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee and is to be assessed as business income subject to assessee having business connection/ PE in India Revenue earned from rendering of implementation services and maintenance services to customers in India as “Royalty/ FTS/ FIS - Held that:-In the present case, the undisputed fact is that the implementation service is inextricably and essentially linked to the supply of software. In view of our decision in Ground No 2 that the supply of software is not taxable as “royalty” under the Tax Treaty, the provision contained in clause (a) to Article 12 (4) would not apply to both Implementation and maintenance services. Further there is nothing to show that these services provided by the assessee actually made available to the End User/ Channel Partners any technical knowledge, experience, skill, know-how or processes so as to enable them to apply the said technology. Under these circumstances, we uphold the arguments of the learned Counsel of the assessee and allow the ground. Whether ACC constitutes the fixed place, Installation and Dependent Agent PE in India of Aspect US under the Tax Treaty? - Held that:- It is submitted that the assessee has not submitted information on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said receipts. Thus we hold that the revenues earned from customers located in Sri Lanka/ Middle East are not taxable under the Tax Treaty. Even otherwise, we are of the opinion that the said revenue is not taxable under Sec. 9 of the Act. Attributing the income to the assessee’s PE in India - Held that:- Where a PE is held to exist, subject to the application of the force of attraction rule, only profits in relation to the assets and activities of the PE may be attributed to it and that an arm’s length payment to a subsidiary PE as per FAR analysis would be sufficient for such attribution.In view of the above, we agree with the learned counsel of the assessee that where an associated enterprise (that also constitutes a PE) is remunerated on arm’s length basis taking into account all the risk taking functions of the multinational enterprise, nothing further would be left to attribute to PE. For the other A.Ys under appeal, we direct the AO to refer the matter to the TPO wherever there is no existing reference either in the case of Aspect US or Aspect India. The TPO shall determine ALP and attribute the profits accordingly. In this regard, we place reliance in the case of Ranbax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these circumstances, we allow this ground in favor of the assessee. - ITA no.1124, 1125/Del/2014, ITA no. 82/Del/2011, ITA no.221, 720 /Del/2013, ITA no. 04/Del/2012, C.O. no. 117, 118, 119, 120, 121/Del/2014, C.O. no. 240/Del/2013 - - - Dated:- 18-5-2015 - SHRI J.SUDHAKAR REDDY AND AND SHRI GEORGE GEORGE K, JJ. For The Appellant : Mrs. Rashmi Chopra, Adv. For The Respondent : Sh. Sanjeev Sharma, CIT, DR Sh. Vivek Kumar, DR ORDER PER BENCH All these appeals are filed by the assessee and the Cross Objections are filed by the Revenue. These appeals arise out of separate orders passed by the Assessing Officer (hereinafter referred to as AO ) u/s 143(3) read with section 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) for Assessment Years (hereinafter referred to as the AY ) 2003-04, 2004-05, 2007-08, 2008-09, 2009-10 and 2010-11 respectively. As the issues arising in all these appeals are common, for the sake of convenience they are heard together and disposed of by way of a common order. Both parties have agreed that the appeal for the A.Y. 2007-08 in ITA 221/Del/2013 be taken as the lead case and the decision in this appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act) (g) Ground 10,10.1 and 10.2 While arriving that the profits attributable to the PE, the learned AO was wrong in not allowing deduction of the remuneration paid to Aspect India by the Assessee, despite directions to this effect in Article 12(7)(b) of the Tax Treaty. (h) Ground 11,11.1.11.2 and 11.3 The AO has earned in holding that the Transfer Pricing provisions are applicable to the Appellant. Further, that the AO has wrongly rejected the Transfer pricing analysis of Aspect India and initiated penalty proceedings for not submitting the TP report and not maintaining TP documents. (i) Ground 12, 12.1 and 13 Challenging the levy of interest under section 234B of the Act and initiation of penalty proceedings under section 271(1)(c) of the Act. Assessee also placed on record paper books in two volumes, from pages 1 to 308 and from pages 1 to 201. Facts in brief:- 1. Aspect Software Inc ( Aspect US or the Assessee ) is a corporation incorporated in Delaware State, USA. The Appellant is engaged in the business of provision of hardware, software and rendering of support services that enable call centre companies, to better manage customer int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttributed to PE in India 15% of the revenues earned by Aspect US from software licensing. He further held that revenues earned from supply of software and support services are taxable as 'Royalty'/Fees for Included Services ( FIS ) under the Act and as per Article 12 of the Tax Treaty on gross basis @15%. 5.1. Having held so, he also attributed 57.5% of revenues earned by Aspect US, from rendering services to the customers located in India and outside India (i.e. Sri Lanka and Middle East), to the Indian PE. The assessee carried the matter in appeal before the DRP-I. The DRP-I, New Delhi vide its order dt. 24.9.2010 u/s 144C upheld the draft order of the AO. In this brief order the DRP rejected the contentions of the assessee and upheld the draft order of the AO. Aggrieved, the assessee is before the Tribunal. The Revenue has also filed Cross Objections with considerable delay. These Cross Objections were later not pressed by the Revenue, after arguing the same for more than two days both on the issue of condonation of delay and also on merits perhaps realizing that these Cross Objections have no merit. 6. We have heard Mrs. Rashmi Chopra, the learned Counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e having special purpose, usage, to manage and automate the billing process. The software is tailor made/customized to suit customer needs. The present software embodies process which is required to control or manage billing activities. Hence, it makes available, the process to its customers; (c) The software for which the licenses have been granted, equips the user/enable the user to carry out high level technical task with precision and that these software are not the ones for running small machines. Hence, it qualifies to be technical and commercial equipment. 9. The DRP confirmed the action of the AO and held that the customer is getting a right to use the software, which can be used for internal operations in business of the customer. The nature of software is far from being shrink wrapped software . Hence, the said software falls within the ambit of section 9(1)(vi) of the Act and the Tax Treaty. 10. The learned counsel for the assesee submitted that, the Assessee sells contact solutions and enterprise workforce optimization solutions (herein after referred to as product or contact solutions ), to the call center companies in India and other countries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l property (such as copyright, patent, etc.) by the owner of such intellectual properties to any other person. Essentially royalty accrues to the owner of the copyright as consideration for commercial exploitation of the intellectual property in the copyright which is the exclusive property of the Copyright owner. Transfer of a copyrighted right means that the recipient has a right to commercially exploit the software (example reproduce, duplicate etc). The payment for such a right is classified as royalty. 13. She further submitted that copyright actually vests in a person only when he has an exclusive right to do all or any of the acts specified under the Indian copyright Act 1957. Mere making copies of a computer program for the limited purposes described in section 52(1)(aa) of the Indian Copyright Act does not infringe the copyright in such program and therefore does not involve the use of any copyright. Section 52(1)(aa)/(ad) of the Indian Copyright Act provides that, making of copies or adaptation of a computer programme by the lawful possessor of a copy of such computer programme, in order to utilise the computer programme for the purposes for which it was supplied; or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation Services (P) Ltd to demonstrate that that there is no transfer of copyright right but only a license to use a copy righted article. Further, reliance was placed on the decision of the Hon ble jurisdictional High Court in the case of DIT vs. Infrasoft Ltd (ITA No 1034/ 2009) where in the Hon ble Court has held that limited right to use the copyrighted material does not give rise to any royalty income. 16. Amongst many case laws cited on the subject, the Learned Counsel for the assessee has heavily relied on the following decisions in support of her arguments: Ericsson A.B vs DIT (Supra) DIT vs. Infrasoft Ltd (Supra) Convergys Customer Management Group Inc (58 SOT 69, Delhi ITAT) In support of her arguments, the learned counsel for assessee also filed a detailed summary highlighting the facts of Ericsson A.B. and Infrasoft decisions, relevant terms of the agreement in both the cases and similarity of the same with the facts of Aspect US. 17. On the Revenue s contention that revenue received would qualify as process royalty or equipment royalty , the learned Counsel submitted that in the instant case, the customers are merely provided with the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment between Concerto Software Inc. ( renamed to Aspect Software Inc.) and C.S. Infocom Pvt. Ltd, Mumbai (pages 96 to 106 of PB- I) and to another Channel sales agreement (pages 107 to 116 of PB-I) and submitted that the channel partner has right to sublicense the products which include software items (clause 3 (C ) page 97 of PB -I). 22. He further submitted that the arguments of the learned Counsel of the assessee are based on the following assertions: (a) That the software is supplied outside India and sale is made on FOB basis. This statement that the property in goods is transferred outside India is factually wrong, and that the claim is made so as to fit within the definition the contours of the decision of the Hon ble Apex Court in the case of Tata Consultancy services (271 ITR 401 , SC). Accordingly, he argued that there is no supply of software and it is a license to use the software. Referring to clause 5(c) of the sample agreement (page 86, PBI), he submitted that the said clause deals only with title to the equipment and not software. He argued that equipment is different from software (clause 1 of page 83 of PB-I). Ownership on rights other than the licensed righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PB- II which states that some customers purchased license for the software from the assessee without purchase of the equipment. This is evident from the invoice filed on page 10 of PB- I wherein software only has been licensed. On a query from the Bench on this point, the learned Counsel for the assessee fairly admitted that software is not embedded in the equipment in some cases. Therefore the decision of the Hon ble Delhi High Court in the case of Ericsson and Nokia (supra) would not apply to the case of the assessee in respect of revenue from such customers. The learned CIT-DR also filed detailed submissions as to the non applicability of Ericsson case to the facts of the present case. (f) On the argument of the assessee that billing is done from the USA, payments are made outside India and shipment is made to India, the learned CIT-DR submitted that it cannot be verified whether billing is from the USA as the same can be printed in the office of Aspect India, Further, these are not signed. Otherwise also, these facts do not decide the taxability of the transaction. (g) Under section 14 of the Copyright Act, copyright means the exclusive right to do or authorize the doi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by resident person for the transfer of all or any rights (including granting of a license) in respect of computer or computer based equipment under any scheme approved under the policy on computer software export, software development and training 1986 of the Government of India. This proviso explicitly carves out the taxation of income from the specific type of software supply only. Thus, income from supply of software through any other arrangement is taxable as royalty. Otherwise the second proviso would become redundant. 25. The Ld.CIT, D.R. argued that Section 115A of the Act which deals in tax on dividends, royalty and technical service fee in the case of foreign companies provides for tax rates on royalty or FTS. Section 115A refers to copyright in any book or in respect of any computer software . This indicates that computer software is very much covered under the definition of royalty . Combined reading of section 9(1)(vi) including its second proviso and section 115A leaves no doubt that consideration for supply / licensing of software is taxable as royalty under the Act. 26. The Learned CIT DR submitted that the taxability of revenue from all sources is required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treaties. The term used in the expression are now explicitly defined in explanation 4 to Section 9(1)(vi) of the Act. Transfer of all or any rights in respect of any right , property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a license.) 29. He argued that reliance should not be placed on the OECD commentary for interpretation of Indian tax law/ treaty. 30. Further, relying on the assessment order he submitted that the revenue received on account of licensing of software would qualify as process royalty and equipment royalty taxable under the Act and the Tax Treaty. 31. In rejoinder, the learned Counsel for the assessee submitted as under: (a) Software is not embedded in the hardware: The software and hardware are integral parts of the solutions which the Appellant sells to its customers and channel partners in India. The software cannot function without the hardware. They are shipped separately only for custom purposes. The learned DR alleged that invoices at page 239 to 252 shows that the software is not embedded in hardware. It is submitted that the software and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retation of such term in the context of the Convention. (g) The Infrasoft ruling has very clearly considered the position post the retrospective amendment and still held software to be not taxable as royalty under the treaty following the precedent laid down in case of Ericsson ruling. (h) Regarding the Learned DR s reliance on the Gracemac ruling, it is respectfully submitted that the ruling was pronounced on shrink wrapped software. In the present case, the software is not shrink wrapped software. Hence, this decision cannot be applied by the Learned DR. Further, the ratio of the Gracemac ruling now stands overruled by the Delhi High Court in the case of Infrasoft. 32. We have heard rival contentions at length. Both parties have filed detailed submissions and other materials. We have perused all the materials on record. The case laws cited are also considered. On a careful consideration of all the arguments, case laws and the material on record, we hold as follows. 33. For the subject AY under appeal, the assessee has earned revenue from licensing of software and supply of contact solutions to the customers in India which is a combination of software and the compati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... software and solely for purposes of installing and/or operating the equipment and software in accordance with the Documentation; (iii) Make one copy of the software and Ancillary programs in machinereadable, object code from only for non productive archival and backup purposes or to replace a worn or defective copy. Customer will not decompile, disassemble or reverse engineer the Products, except as and be the extent expressly authorized by applicable law. The interface information necessary to achieve interoperability of the Products will be provided by Aspect on request and upon Customer s payment of Aspect s reasonable costs and expenses for procuring and supplying such information. Customer shall not at any time remove, modify, obscure or otherwise alter in full or in part any copyright or other proprietary notice(s) of Aspect s or a third party as the same may be contained in or appear on the originally procured Product, or any copy or component thereof. Definitions (Page 83 of PB-I) Product- Products means equipment, software and Ancillary program(s) as applicable. Equipment- Equipment means Aspect proprietary hardware and third party hardware p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s customers who are end-users of Product within the Territory. (l) End User Agreement means that certain written agreement entered into by and between Partner and End-User, pursuant to which End User shall procure Product and Services directly from Partner. (m) Equipment means Concerto s proprietary equipment and third party equipment for which partner has received specific written authorization from Concerto and which is purchased from Concerto and specified on a Quotation. (q) IP Materials means any Software and Ancillary Programs (including, without limitation, Service deliverables and Documentation) and all Concerto Information and proprietary material. IP Materials shall include, without limitation, all programs, program listings, programming tools, procedures, reports, and drawings (except to the extent that such reports or drawing contain End-User specific data or information). (r) Marks means trademarks, service marks, logos or other words or symbols identifying the Products or Concerto s business including circuit layouts, invention and mask works. (y) Product(s) means the Equipment, Software, Ancillary programs and Documentation. Upon notice to Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... less restrictive than the Minimum License Terms if, and only to the extent, required to comply with local law in the applicable country within the Territory. (iii) In no event shall Partner license or deliver to any End-User or other third party any source code for the Software or Ancillary Programs, in whole or in part. (iv) Partner recognizes that the Ancillary Programs are licensed to Concerto by Third Party Licensor(s) and that the functionality of the Software relies in part on such Ancillary Programs. Partner further recognizes that Third Party Licensors may, from time to time, impose the restrictions on the sale, license or use of such Ancillary Programs within the Territory. Concerto shall notify Partner of any such third party actions, but shall have no liability whatsoever to Partner on such basis. Each Third-Party Licensor is a direct and intended third party beneficiary of this Agreement to the extent the Agreement relates to the Ancillary Programs, and may enforce the Agreement directly against Partner to such extent, provided, however that no Third-Party Licensor shall be liable to the Partner for any general, special, direct, indirect, consequential, incidenta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges billed to Partner by Concerto. All shipping, insurance, and other related obligations shall be assumed by Partner at the time of Delivery. Partner will pay or reimburse. Concerto for any insurance, brokerage, handling, transportation, demurrage and other transport-related costs that Concerto may incur with respect to any Concerto assistance related to delivery, transport, or otherwise moving the Products from Concerto s distribution center to Partner, Concerto will separately identify all reimbursable costs in its Order confirmation or Invoice issued to Partner. (iv) Concerto shall perform or cause to be performed at its factory its standard quality assurance test procedures on all Products to be delivered by Concerto hereunder. Product shall be deemed to have been accepted by Partner upon Delivery. (v) Title to the Equipment and all risk of loss to the Products shall pass to Partner upon delivery to the common carrier. Partner, at its expense, shall insure all Equipment against risk of loss and damage until delivered to the destination stated in the order. Partner acknowledges that title to the Software and Ancillary Programs shall at all times remain vested in Concerto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The Assessing Officer was of the view that the income of the assessee was taxable in India, both, under the Income-tax Act, 1961 as well as under the treaty between India and Sweden. He held that it was business income and Assessee had a PE in India. The CIT(A) held that the receipts in respect of license to use software which is part of the hardware alone could be taxed in India as royalty. The Assessee argued before the Tribunal that the payment made by the assessee for the use of software in the equipment does not amount to royalty. The Tribunal in the aforesaid context examined the issue as to whether the payment is for a copyright or for a copyrighted article. If it is for copyright, it should be classified as royalty, both under the Income-tax Act and under the DTAA and it would be taxable in the hands of the assessee on that basis. If the payment is really for a copyrighted article, then it only represents the purchase price of the article and, therefore, cannot be considered as royalty either under the Act or under the DTAA. The Tribunal after referring to definition of Royalty under the Act and the definition copyright under the Copyright Act, 1957 held that what was so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) The cellular operator cannot commercially exploit the software and therefore a copyright is not transferred. (iv) Further, the parties to the agreement have not agreed upon a separate price for the software and therefore it is not open for the income tax authorities to split the same and consider part of the payment for software to be royalty (v) The bill of entry for importing of goods shows that the price has been separately mentioned for software and that this was only for the purposes of customs. There is no evidence to show that the assessee was a party to the fixation of value for the customs duty purposes (vi) The software provided under the contract is goods and therefore no royalty can be said to be paid for it. 53. Mr. Prasaran, countered the aforesaid reasoning arguing that Clause 20 of the Supply Contract uses the term licence and the same term is used in the context of software throughout the three Agreements, indicating that it is not an outright sale of goods, or a full transfer of rights from the assessee to the Indian company. He also submitted that the software is a computer programme, which is treated differently from a book, not only in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware, therefore, the Tribunal is right in holding that it was not permissible for the Revenue to assess the same under two different articles. The software that was loaded on the hardware did not have any independent existence. The software supply is an integral part of the GSM mobile telephone system and is used by the cellular operator for providing the cellular services to its customers. There could not be any independent use of such software. The software is embodied in the system and the revenue accepts that it could not be used independently. This software merely facilitates the functioning of the equipment and is an integral part thereof. On these facts, it would be useful to refer to the judgment of the Supreme Court in TATA Consultancy Services v. State of Andhra Pradesh, 271 ITR 401 , wherein the Apex Court held that software which is incorporated on a media would be goods and, therefore, liable to sales tax. Following discussion in this behalf is required to be noted:- In our view, the term goods as used in Article 366(12) of the Constitution of India and as defined under the said Act are very wide and include all types of movable properties, whether those properti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comes a readily merchantable commodity. Similarly, when a professor delivers a lecture, it is not a good, but, when transcribed as a book, it becomes a good. That a computer program may be copyrightable as intellectual property does not alter the fact that once in the form of a floppy disc or other medium, the program is tangible, moveable and available in the marketplace. The fact that some programs may be tailored for specific purposes need not alter their status as goods because the Code definition includes specially manufactured goods. 56. A fortiorari when the assessee supplies the software which is incorporated on a CD, it has supplied tangible property and the payment made by the cellular operator for acquiring such property cannot be regarded as a payment by way of royalty. 57. It is also to be borne in mind that the supply contract cannot be separated into two viz. hardware and software. We would like to refer the judgment of Supreme Court in CIT v. Sundwiger EMFG Co., 266 ITR 110 wherein it was held: A plain and cumulative reading of the terms and conditions of the contract entered into between the principal to principal i.e., foreign company and Midhani i.e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blished. It is not even the case of the Revenue that any right contemplated under Section 14 of the Copyright Act, 1957 stood vested in this cellular operator as a consequence of Article 20 of the Supply Contract. Distinction has to be made between the acquisition of a copyright right and a copyrighted article . 60. Mr. Dastur is right in this submission which is based on the commentary on the OECD Model Convention. Such a distinction has been accepted in a recent ruling of the Authority for Advance Ruling (AAR) in Dassault Systems KK 229 CTR 125. We also find force in the submission of Mr. Dastur that even assuming the payment made by the cellular operator is regarded as a payment by way of royalty as defined in Explanation 2 below Section 9 (1) (vi), nevertheless, it can never be regarded as royalty within the meaning of the said term in article 13, para 3 of the DTAA. This is so because the definition in the DTAA is narrower than the definition in the Act. Article 13(3) brings within the ambit of the definition of royalty a payment made for the use of or the right to use a copyright of a literary work. Therefore, what is contemplated is a payment that is dependent upon use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment, it is necessary to establish that there is transfer of all or any rights (including the granting of any licence) in respect of copyright of a literary, artistic or scientific work. In order to treat the consideration paid by the Licensee as royalty, it is to be established that the licensee, by making such payment, obtains all or any of the copyright rights of such literary work. Distinction has to be made between the acquisition of a copyright right and a copyrighted article . Copyright is distinct from the material object, copyrighted. Copyright is an intangible incorporeal right in the nature of a privilege, quite independent of any material substance, such as a manuscript. Just because one has the copyrighted article, it does not follow that one has also the copyright in it. It does not amount to transfer of all or any right including licence in respect of copyright. Copyright or even right to use copyright is distinguishable from sale consideration paid for copyrighted article. This sale consideration is for purchase of goods and is not royalty. 88. The license granted by the Assessee is limited to those necessary to enable the licensee to operate the program. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not being considered as the issue is extensively dealt by the Hon'ble Jurisdictional High court in the cases of M/s Ericsson A.B. and Infrasoft Ltd (supra) which are binding on this Tribunal. We observe that all the arguments put forth by the Revenue and the assessee are considered and answered in these decisions. Further, the Delhi High Court in Infrasoft has expressed its disagreement with the view taken by the Karnataka High Court in the case of Samsung Electronics Co Ltd. Hence, the decisions relied by the learned CIT-DR in the case of Samsung Electronics and Gracemac Corporation (supra) does not help the case of the Revenue, as we are under the Jurisdiction of the Hon ble Delhi High Court. 42. In view of the above, respectfully following the decision of Hon'ble Jurisdictional High Court in the case of Ericsson A.B. (supra) and Infrasoft Ltd. (supra), we hold that the consideration received by the Assessee for supply of product along with license of software to End user is not royalty under Article 12 of the Tax Treaty. Even where the software is separately licensed without supply of hardware to the end users (i.e. eight out of 63 customers), we are of the view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermine revision levels for the authorized software partners, software upgrades etc. It also includes wide range of classroom and computer based courses as well as custom courses tailored to meet unique training, schedule and location requirements that focus on the application and functionality of Aspect products. Revenue from professional services has been offered to tax by the assessee as FIS under Article 12 of the Tax Treaty. 45. The AO rejected the contentions of the assessee that the services in question were performed outside India and that only in exceptional cases the end customer and channel partners insist on providing onsite support and ACT provides the support. The AO was of the view that the implementation services cannot exist without transfer of software license and hence, these services are inextricably linked with the grant of software licenses. The AO has taxed the revenues from these services as Fees for Technical Services under Sec. 9(1)(vii) of the Act and as FIS under the Tax Treaty. Similarly for maintenance services, the AO was of the view that they are FTS under the Act and FIS under the Tax Treaty for the reason that there would not have been any main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kol ITAT) CIT vs. Hindustan Shipyard Ltd.( 109 ITR 158, AP HC) CIT vs. Sundwinger Empg Co. (262 ITR 110, AP HC) Guy Carpenter Co.Ltd. (346 ITR 504, Delhi HC) Debeers India Minerals Ltd. (346 ITR 467, Kar HC) 49. The learned CIT DR relied on the orders passed by the AO and submitted that the definition and scope of various support services provided by Aspect India to customers of Aspect Inc is available as given below: Services (Clause 1 on page 83 of PB-I) Support services: Implementation (page 86 of PB-I); Maintenance support (page 86 and 87); education services (page 88); professional services (page 88) and Time and Remedies (page 88). 50. The learned Counsel for the assessee has claimed that 90% of services to customers are provided by Channel Partners and balance 10% are provided by the assessee to customers. On this issue the Ld.D.R. pointed out that the agreement with the Channel partners defines services means system implementation services, training services, professional, enterprise solution services, support (maintenance services), equipment relocation services, and/ or time and material services (clause1 (bb) on page 97 of PB-I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, all as hereinafter defined, and any other services provided to Customer by or on behalf of Aspect, together with the related deliverables provided under services . 53. The revenue earned by the assessee from provision of education and professional services has been offered to tax in the return of income filed for the subject AY. The AO has now brought to tax the revenue earned from implementation service and maintenance service to tax. 54. Under the provisions of Sec 9(1)(vi)/(vii) of the Act, the revenue earned from the above services may qualify as royalty/ FTS. However, under Article 12 (4) of the Tax Treaty, the payments would qualify as FIS if the payment is for rendering of any technical or consultancy services, if such services: a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received ; or b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. 55. The term make available is not defined under the Tax Treaty. The Memorandum of Understanding ( MoU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transfer pricing analysis and service contracts at page 46 to 51 of his order, to prove his point that the functions have not been properly identified by the assessee in the transfer pricing analysis. He concluded that the assessee has identified complete functions. Hence for the reasons given in the order, the transfer pricing analysis of Aspect, India is held to be defective. Hence he rejected the same. He held that ACC is a projection in India and Aspect, USA and ACC provides the important peoples function to the assessee. (d) The subsidiary has been putting a logo/mark of the assessee and has not created any separate identity for itself (e) ACC is economically dependent on Aspect, US and it qualifies to be a distributor of Aspect, US. (f) ACC has de facto authority to conclude contracts on behalf of the assessee; (g) ACC has habitually solicited orders for Aspect, US. 60. The AO also concluded that the assessee has an installation PE in India, for the reason that on account of the sales through channel partners, ACC is permanent installation and implementation office in India for the assessee. The DRP rejected the objections of the assessee in this regard and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is it is evident that Aspect, US did not undertake any business activity in India. The assessee has no employee in India for supply and other services in relation to hardware and software. 65. The employees visited India at irregular intervals for a total duration of 109 days to meet prospective clients, understand the requirement of existing customers, analyse the Indian market etc. which activity does not result in constitution of any P/E. 66. Even if the subsidiary company i.e. ACC carries out activities of the assessee, these are only auxiliary activities which do not constitute the core business activity of the assessee company. Hence, the case would also be covered under the specific exclusion provided under Article 5(4) of the DTAA. Hence it was argued that the assessee does not have a fixed P/E. Reliance was placed on the following case laws. Motorola Inc. vs. DCIT (SB) (2005) 95 ITD 269 (Delhi S.B.) CIT vs. Visakhapatnam Port Trust 144 ITR 146 CIT vs. Morgan Stanley Co.Inc. 67. On the findings of the AO that the assessee has an installation P/E it was argued that (a) the implementation services primarily involves uploading of software providing sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee to the customers as per their requirements and to pass on pricing function and contract terms as determined by Aspect, US. The process was explained as follows: The end customer places the request with the channel partner, who after understanding the needs of the customers, submits the request to the ACC. ACC inputs the requests specifications to Aspect US via I Approve system which is controlled/managed by Aspect US. Basis the specifications, Aspect US informs ACC about the acceptance/ rejection of the request on the I Approve system. The same is communicated by ACC to the Channel Partners who in turn, communicate the same to the end users. The following activities are done directly between Aspect US and the Customers: The Channel Partners/Customers raise the purchase orders on Aspect US; Orders are placed by the Channel Partners/Customers; Shipment of the product is directly made by Aspect US to the customers; Aspect US raises the invoice directly on customers/Channel Partners; Payment is remitted by the customer to Aspect US. Hence it is submitted that the assessee does not have a P/E in India in terms of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Service agreement to demonstrate his point of view. 79. The Ld.D.R. alleged that the agreement in question is not signed and the assessee had not furnished the documents regarding change of name in parties and hence the agreement cannot be relied upon. These arguments are made by the Ld.DR with a view to demonstrate that the actual functions performed by Aspect India is in excess of the limitations placed on it by agreement dt. 9.2.2004. 80. He referred to the last service agreement between the Aspect Inc. and Aspect India effective from 1st August,2004 and submitted that under this agreement the contractor will perform research development, testing services, as it is requested by Concerto Software Inc. i.e. the assessee company Aspect Software Inc. He also referred to the amended agreement dt. 20th December,2006 and alleged that the assessee has not submitted any information on the services provided by the contractor and it is not clear whether this agreement concerned a separate business of the assessee and for which no income has been offered to tax. 81. Ld.D.R. gave the departmental version as to how from the revenue s point of view, the sales are made and the licen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve not correctly captured the services provided by Aspect India and are to be considered as selfserving documents. 86. He pointed out that the proposals are also prepared to get approvals for non standard payment terms. The sales team of Aspect India also secured orders for customers in Sri Lanka and Saudi Arabia and this was not disclosed in the T.P.study. 87. The sum and substance of the contentions is that, Aspect India performs the core functions of customer profiling, price negotiation and closure of the deal and its function is not limited market support as claimed by the assessee. He contends that the burden is on the assessee to lead evidence otherwise and that this is not discharged. 88. He contended that there is no case where Aspect Inc. has refused any I Approve submitted by Aspect India and argued that this shows that the prices and discounts initiated by the Indian Subsidiary are final and that the assessee has no direct role. The Ld.D.R. stated as follows: The claim that the customer is free to purchase any individual product or services, as many customers have purchased only the services during the year without acquiring any hardware or software. Som ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tomers or channel partners had any direct dealing or interaction with the assessee outside India and this is out of question when Aspect India has employed persons who have designations as channel managers, sales manager, and senior sales manager and director sales. Claim that channel partners do not require any concurrence from the Appellant for sale of the product to the ultimate customer is apparently not correct because the channel partners do forward the purchase order of the end customer to Aspect India and the discounts are decided by the Aspect India. Claim that Aspect India acts as a communication channel between the assessee and the customers in Sri Lanka and Middle East and, per se, does not sell on behalf of the assessee or secure orders for the assessee. This claim is contrary to facts as evident from the statement of Director Sales of Aspect India. Can assessee explain that when the Aspect India is not making sales, as per its claim, then why the employees of Aspect India have designation of Director sales/manager sales Asia, Sri Lanka and Middle East? It is the assessee who is present in India through Aspect India and carries business in India, Sri Lanka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased on information provided by Aspect India; * even if the server is located outside India, it is not of any significance because the business of Aspect India is done through same server; * all employees of Aspect India has e-mail address of Aspect.Com and have direct access to I Approve and hence the computer system of Aspect India is just an extension of the system of Aspect USA which the subsidiary uses without any cost to it; * the prices are negotiated and approved by employees of Aspect India and all important decisions are taken in India; * the claim of the assessee that the employees of Aspect US visited India for the limited purpose of meeting prospective/existing customers etc. supports the revenue s decision that all sales related activities are carried out by the subsidiary only; * the support provided by the assessee s employees to the subsidiary cannot be considered as a preparatory and ancillary activity. As the core business of sale equipment, licensing of software and provide services; * the designations given to the employees of the subsidiary indicate that it is these employees who actually perform the sales functions; * the assessee s pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale activity undertaken is the main business activity and cannot be regarded as auxiliary nature. As regards the fixed place of business in India, it is contended by the assessee that the business place of Aspect India is not under the control or at the disposal of the assessee and, hence, there is no fixed PE. The revenue, on the other hand, has contended that since the employees of the assessee were in India, the assessee has carried on business in India. After considering the material on records, we are of the view that neither the assessee nor the revenue has been able to conclusively demonstrate the absence or presence of the assessee s fixed place of business in India under Article 5 of the India USA Treaty. The revenue has, further, contended that the assessee has not submitted the information on visit reports submitted by the employees and information on e- mails of these visiting employees. We, therefore, set aside the matter and remitted to the assessing officer for proper verification regarding existing of PE in India. The assessee also shall submit the details as called for by the assessing officer. Installation PE: The revenue contends that since installation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He has and habitually exercises in the first-mentioned State an authority to conclude on behalf of the enterprise, unless his activities are limited to those mentioned in paragraph 3 which, if exercised through a fixed place of business, would not make that fixed place of business a permanent establishment under the provisions of that paragraph; (b) He has no such authority but habitually maintains in the firstmentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise, and some additional activities conducted in the State on behalf of the enterprise have contributed to the sale of the goods or merchandise; or (c) He habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise The first and foremost requirement under Article 5(4) is that the said Article will apply to a person other than an agent of an independent status to whom paragraph 5 applies. Paragraph 5 of Article states as under: 5. An enterprise of a Contracting State shall not be deemed to have a permanent es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication. Considering these facts, we are of the view that both the revenue and the assessee have not been able to demonstrate the existence or otherwise of the dependent agent PE . In the absence of proper information in this regard, we are unable to decide whether the assessee has a dependent agent PE in India. We accordingly, set aside the issue of dependent agent PE and restore to the assessing officer for fresh consideration. Ground 6 , 6.1 92. This ground is on revenue earned from supply of software and rendering of maintenance and professional services to customers located in Sri Lanka and Middle East as Royalty/ FTS/ FIS under the Act and the Tax Treaty. 93. The Assessee has provided sales and support services to customers in Sri Lanka and Middle East. The factual aspect of providing services in respect of sales to customers in Sri Lanka and Middle East came to light during the statement recorded of Shri Balu , Sales Director (South Asia and Middle East) under section 131 of the Act. 94. The AO taxed the revenue earned by assessee from supply of software and provision of support services from customers based in Sri Lanka and Middle-East Asia under Sec. 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arried on in India or for the purpose of making or earning of any income from any source in India. Thus, no income can be brought within the ambit of India taxation. 98. Further, she drew our attention to Article 12 of the Tax Treaty which read as under Article 12 Royalties and fees for included services: 1. Royalties and fees for included services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other state. 2. However, such royalties and fee for included services may also be taxed in the contracting state in which they arise and according to the law of that state 7. (a) Royalties and fees for included services shall be deemed to arise in a Contracting State when the payer is that State itself, a political subdivision, a local authority, or a resident of that State. Where, however, the person paying the royalties or fees for included services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for included services was incurred, and such royalties or fees for inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile recording the statement of Mr. Shankar Balu, the learned Counsel for assessee submitted that the since the revenue received from the customers located outside India for supply of software could not have been brought within the Indian taxation, there was no requirement on the part of the assessee to disclose such income in the tax return. By no stretch of imagination, the assessee could have though that the Learned AO will link the receipts with Indian operations of the Aspect US. Further, the AO also did not specifically ask for the details. However, subsequently when the AO requested for details, the assessee had fully co-operated with the Revenue. In absence of any specific details, it will be unjust to penalize the Appellant for a transaction having no nexus with India. 103. We have heard the rival contentions and perused the record. We find it difficult to accept the arguments of the learned CIT-DR for taxing the said receipts. In view of our observations in Ground No 2, 3 and 4, we hold that the revenues earned from customers located in Sri Lanka/ Middle East are not taxable under the Tax Treaty. Even otherwise, we are of the opinion that the said revenue is not taxabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Act, 1961 itself, we do not find it necessary to examine the taxability of the same under Article 12 of the Tax Treaty. Ground no 7 and 8 107. These grounds are against double taxation of income and application incorrect rate of tax for computing the tax on royalty/ FTS income on gross basis. 108. The learned Counsel for the asseessee has submitted that the AO has taxed the revenue from supply of software earned and rendering of implementation, maintenance and professional services to customers located in India, Sri Lanka and Middle East as Royalty / FTS on gross basis @15% and also proceeded to attribute certain percentage of the revenue to the alleged PE thereby, resulting in double taxation of income. Accordingly, she prayed for relief. Further, she submitted that the learned AO has used the incorrect rate of tax while computing the tax on gross basis. The Ld. AO has taxed such income @ 15% irrespective of whether the agreement has been entered into on or before June 1, 2005 or thereafter. Hence, even where the agreement is entered after June 1, 2005, the AO has taxed the income @ 15% instead of 10% (plus applicable surcharge and cess) under section 115A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent operating through a business connection in India, that where a business connection of a nonresident is constituted under the Act, the total income of such a nonresident would be subject to tax in India, but only so much of the income of such non-resident as is reasonably attributable to the operations carried out in India would be subject to tax in India. Reliance was placed on the Hon ble Supreme Court decision in the case of Ishikawajima Harima Heavy Industries Ltd vs. DIT (288 ITR 408, SC). (b) In the context of onshore activities incidental to the sale of goods, it has been held that where the sale of goods has taken place outside India and the activities carried out in India are only incidental/ ancillary to such sale, no profit/ loss can be attributed. Reliance was placed on the decisions of the Hon ble Andhra Pradesh High Court in the case of CIT vs. Navbharat Ferro Alloys Ltd (224 ITR 0261); CIT vs Hindustan Shipyard Ltd (109 ITR 0158) and CIT vs Sundwiger Empg and Co (261 ITR 110). (c) Further, the Central Board of Direct Taxes ( CBDT ) in its circular No. 23 dated July 23, 1969, with a view to clarify the position, stated that in respect of sales made by a non-r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions actually carried out in India and profit or loss attributable to activities carried outside India would need to be excluded She relied on the decision of the Hon ble Supreme Court in the case of Ahmedbhai Umarbhai Co. (18 ITR 472, SC) and decision of Special Bench of ITAT in the case of Motorola Inc (95 ITD 269, Delhi ITAT SB). (e) Even under Article 7 of the Tax Treaty, only such profits as are directly or indirectly attributable to the PE of Appellant in India shall be taxable in India. (f) In determining the profits attributable to a PE, it is necessary to determine the allocation of Functions, Assets and Risks ( FAR ) to the PE and the attribution of income to the PE under arm s length conditions. In support of her arguments, the Counsel relied on the decisions of the Hon ble Supreme Court of India in the case of Morgan Stanley Co. Inc. vs. DIT (292 ITR 416) and the Bombay High Court in the case of SET Satellite (Singapore) Pte Limited ( SET ) (307 ITR 205, Bom HC) wherein the Hon ble Courts have held that an associated enterprise (that also constitutes a PE) is remunerated on arm s length basis taking into account all the risk-taking functions of the multination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided by Aspect India to Aspect US, has held that the Aspect India has been remunerated at arms length price for the services provided to Aspect US. In the AY 2006-07, the learned TPO has however, made certain adjustments to the mark up received by Aspect India for services provided to Aspect US. However, Aspect India has not accepted the aforesaid adjustments and appealed before the Hon ble ITAT and the Hon ble ITAT has remanded the matter to the file of the DRP. (j) The scope of services rendered by Aspect India in the subject assessment year under consideration is similar to the services, provided by Aspect India in the prior years, which have duly been scrutinized by the learned TPO. The AC, while making the above allegations, has not taken cognizance of the order of the learned TPO and has acted beyond his jurisdiction. In view of the above, it was submitted that Aspect US does not have any assets in India and since Aspect India has been remunerated at arms length price for the services provided, no further profits can be attributable to the alleged PE of Aspect US in India. 114. Without prejudice to the contention that no further income can be attributed to the al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Aspect U.S.Inc.in India. It was submitted that as the assessee has incurred losses globally for the FY 2006-07 no profit can be attributable to the P.E. for the subject Assessment Year. 116. One more alternate argument was raised without prejudice to the main contention and it was submitted that only profit can be taxed under the Act and treaty and that the AO wrongly identified 15% of the sales as attributable to the P.E. and tax the same. She suggested the following formula for computing the profits attributable to the P.E. in India : Revenue (x) Attribution Rate (x) Profit rate She argued that the AO should apply the profit rate instead of attributing a portion of the revenues as profits of the P.E. For the proposition that net profit rate should be applied to the revenues that are attributable to the P.E. for the purpose of arriving at the profits attributable to the P.E., the Learned Counsel relied on the following case laws. Nokia Corporation (95 ITD 296, Delhi SB ): 20% attribution of weighted net profit. Functions identified were (a) Network planning (b) Negotiations in connection with the sale of equipment (c) The signing of the supply and installation contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , income from hardware has been determined @15% of hardware sales. In the grounds of appeal filed before the Tribunal the assessee has not objected to the taxation of hardware sales and is only aggrieved by the rate of attribution @ 15% of the hardware sales made to customers in India. As the assessee does not have any legal objection with regard to taxability of revenue earned from hardware sales, therefore the arguments that sales are made on FOB basis outside India can only be considered as an argument to object that attribution made at 15% of sales revenue. The assessee has not raised any ground that income from hardware sales is not taxable as per the provisions of section 5 and section 9 of the Act. Assessee has not challenged the finding of the AO that it has business connection in India. It has grievance against the finding of the AO regarding PE and attribution of income on account of hardware sales. The learned counsel of the assessee has argued that in view of Supreme Court Ruling no income from hardware sales is taxable in India. However, neither the ruling was cited nor a copy of the same is filed in the Paper book, therefore the revenue is unable to respond to this cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd the rival contentions and perused the material on record. We see merit in the arguments of the learned counsel of the assessee. In the instant case, the AO has not provided the basis for attributing the income to the assessee s PE in India. Calculation of the profits attributable to a PE is a fact specific exercise which has to be computed considering the provisions of law and the precedents on the subjects. 124. The co-ordinate bench of this Tribunal in the case of Convergys Customer Management Group Inc. V ADIT (58 SOT 69) (Del) has held that an overall attribution of profits to the PE is a transfer pricing issue and no further profits can be attributed to a PE once an arm s length price has been determined for the Indian associate enterprise, which subsumes the functions, assets and risk profile of the allege PE. The above view was expressed by the bench considering the CBDT circular No.5 of 2004 dt.28-9-2004 as well as the ratio upheld by the Supreme Court in Morgan Stanley (Supra), the Bombay High Court in Set Satellite Singapore (P) Ltd. Vs. DIT, International Taxation (307 ITR 205), the jurisdictional High Court in Rolls Royce Singapore (P) Ltd., Vs. Asst. DIT (202 Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction of remuneration paid to the alleged P.E. from the profit attributed to the P.E. 130. The Learned Counsel for the assesee relied on Article 7 of the Tax Treaty and submitted that while determining the profits of the P.E. there shall be allowed as deduction, expenses which are incurred for the purpose of business of the PE including reasonable allocation of executive and general administrative expenses, research and development expenses, interest and other expenses incurred for the purpose of the enterprise as a whole whether incurred in India or elsewhere. Therefore, the AO ought to have allowed the remuneration paid to ACC as deduction for arriving at the taxable income. She argued that since Aspect US is remunerating to ACC at arm s length for the services rendered by it, deduction of the said expenses is crucial to determine the real income arising to the assessee. Disallowance of such expenditure would result in taxation of inflated incomes in the hands of the assessee. She pointed out that ACC is offering to tax the revenues received by it from the assessee company and hence non deduction of the same will result in double taxation. It was pointed out that in the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by attributed further consideration to Aspect India. The DRP has upheld the AO rejecting the Transfer Pricing analysis of the Appellant. 136. The Learned Counsel for the assessee submitted that the sale transactions of the assessee cannot be termed as international transactions under the Act as there is no transaction between the two A.Es. She explained the nature of business and the types of transactions and argued that the transactions entered into by Aspect US, the channel partners/end customers do not attract transfer pricing provisions in India. She also disputed the rejection of transfer pricing analysis of Aspect India and she defended the TP study of the Subsidiary company and argued that no penalty can be levied u/s 271BA and 271 AA is not maintaining transfer pricing documentation. 137. The Learned CIT-DR submitted that there is no dispute that the assessee and ACT are associated enterprises. Further, the transactions in regard to rendering of services by ACT are international transactions. Therefore, the AO has rightly held the TP provisions are applicable to the assessee and it must have strictly observed the compliance of these provisions including filing of repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court in the case of Morgan Stanley and Co. Inc (Supra). 140. Similar issues have been dealt with by us earlier in this order while dealing with attribution of profits to the PE. As the criteria for adjudication of both the issues is similar, consistent with the view taken by us we direct the assessing officer to accept the TPO analysis of Aspect India wherever the same is available. Ground no.11.2, 11.3, 12 141. By way of this ground, the assessee has challenged initiation of penalty proceedings u/s 271BA (for non furnishing of TP report), 271AA (for nonmaintenance of TP documentation) and 271(1)(c) of the Act. In our view it is premature to question the action at this stage as they are all independent proceedings outcome of which can be challenged if the assessee feels aggrieved. This ground is accordingly rejected. Ground no. 13- Levy of interest under Sec 234B of the Act 142. The learned Counsel for the assessee has disputed the levy of interest u/s 234B of the Act placing reliance on the judgement of the Jurisdictional High Court in the case of DIT vs. Jacabs Civil Incorporated (330 ITR 578, Del HC) and other case laws on the subject. She also disti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 234B would follow; assessee could not be permitted to shift responsibility to Indian payers for not deducting tax at source from remittances, after leading them to believe that no tax was deductible. 147. The learned CIT-DR heavily relied on the decision of Alcatel Lucent (Supra) to support the levy of interest under Sec. 234B of the Act. 148. The undisputed fact in the present case is that tax on the entire income received by the assessee was required to be deducted at appropriate rates by the respective payers under section 195(2). Had the payer made the deduction of tax at the appropriate rate, the net tax payable by the assessee would have been Nil. 149. In the case of Alcatel, Alcatel has not offered the income to tax while filing the tax return and also the deductees had not withheld tax on the same. However, in the present case, tax was deducted at source by the customers and payers in India on payments made to the assessee company and the assessee company is claiming refund of this tax deducted. The interest obligation has arisen on account of the AO holding ACC as PE of asseseee in India which resulted in higher assessed income. Further, the Revenue has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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